John Stossel: There's capitalism, and then there's crony capitalism

Capitalism is great because it lets entrepreneurs raise money so they can scale up and get their products and services to more people. If there is free competition, innovators with the best ideas raise the most money, and the best and cheapest products spread far and wide.

But it’s “crapitalism” when politicians give your tax money and other special privileges to businesses that are “most deserving of help.” Often those businesses turn out to be run by politicians’ cronies.

Many government agencies feed this crony capitalism. When there is scandal, such as when the Energy Department lost $500 million on Solyndra, we hear about it. But often we don’t. You probably didn’t know about the department’s other fat losses on businesses like Solar One, the Triad ethanol plant, FutureGen, the Clinch River Breeder Reactor and so on.

Even the Small Business Administration is an embarrassment. They loaned $1 million to a Lamborghini dealership and $3 million to a Rolex dealer. Is this where your tax money should go? Voters assume government handouts go to people who need help. But they usually don’t. Most government handouts go to the middle class and the rich.

Government has no business handing out loan guarantees to companies. Corporations can pay their own way. The Agriculture Department’s Market Access Program gives millions of dollars to affluent groups like the Pet Food Institute, the Wine Institute, Sunkist and Welch Foods. In return, politicians get campaign contributions. It’s disgusting crapitalism.

The biggest funder of this crony capitalism is the Export-Import Bank. The bank says its “financial products enable exporters of all sizes to ... protect against the risks of international trade and export with confidence.”

That sounds good, and it’s why most politicians support it. But for the first time in my memory, there is pushback. Many Republicans want to stop this corporate welfare. The chairman of the House Committee on Financial Services, Jeb Hensarling, R-Texas, points out that most of the government’s export loans go to “Fortune 500 companies like G.E., like Boeing, who could easily finance these things themselves ... the Export-Import Bank claims they create American jobs, but when the Export-Import Bank helps Boeing sell a jet to Air India, it hurts Delta Air Lines.”

Right. When government picks winners, it pats itself on the back — and gains crony friends in industry. But it creates losers at the same time.

But few of us bother to complain. Benefits of government spending go to a concentrated few — who fight to keep the program going. When taxpayers and domestic businesses suffer because of resources transferred to the well-connected Ex-Im Bank-linked businesses, we each lose just a few bucks. We will never hire as many lobbyists to criticize the bank as the beneficiaries do to keep it going. Like every other government program, Ex-Im Bank creates a vocal constituency that never wants to see the program die.

And that time and energy spent lobbying is time that companies might have devoted to improving their product or making their business more efficient. Gifts from government get companies to focus on lobbying instead of innovation. Government favoritism creates bad incentives.

Before he was President, Barack Obama agreed with me. He said, “I’m not a Democrat who believes that we can or should defend every government program just because it’s there. There are some that don’t work, like ... the Export-Import Bank that has become little more than a fund for corporate welfare.”

Yes! Candidate Obama understood. But now, instead of getting rid of the Ex-Im Bank, he wants the bank to loan out even more of your money.

Does America need “export assistance,” as well as “small-business support,” an “energy policy” and so on?

No! We already have a time-tested policy for deciding, without government interference, where resources should go. It’s called the free market. It works much better than government does.

John Stossel is the author of “No They Can’t: Why Government Fails, but Individuals Succeed.”